State aid: Commission opens in-depth investigation into Italian support for steel producer Ilva in Taranto, Italy

Brussels, 20 January 2016

The European Commission has opened an in-depth inquiry to assess whether Italian state support for steel producer Ilva was in line with EU State aid rules.

In particular, the Commission will examine whether measures facilitating Ilva's access to finance for modernising its plant in Taranto givethe company an unfair advantage not available to its competitors. Given the urgent need to tackle pollution at the Ilva premises in Taranto, the Commission decision also provides safeguards that allow Italy to proceed immediately with clean-up measures. The opening of an in-depth investigation gives interested third parties the opportunity to submit comments on the measures under assessment. It does not prejudge the outcome of the investigation.

In view of overcapacity problems in the EU's steel industry, EU State aid rules only allow fostering the long-term competitiveness and efficiency of steel manufacturing but not the support of manufacturers in financial difficulties. These rules have been consistently applied in a number of EU countries.

Commissioner Margrethe Vestager, in charge of competition policy, stated: "Steelmakers across the EU are struggling with worldwide overcapacity and strong imports – the response to this challenge must be to improve the sector's long-term global competitiveness. Therefore, EU state aid rules enable Member States to for example support research activities or relieve energy costs of steel companies, and the Commission tackles international trade distortions using anti-dumping or anti-subsidy measures. It is also why EU countries and the Commission have put in place strict safeguards against state aid to rescue and restructure steel companies in difficulty. This avoids harmful subsidy races between EU countries and that uncontrolled state aid in one EU country can unfairly put at risk thousands of jobs across the EU.

In the case of Ilva, the Commission will now assess whether Italian support measures are in line with EU state aid rules. We will work with Italy to address our current concerns. The best guarantee for a sustainable future of steel production in the Taranto region is the sale of Ilva's assets to a buyer that upgrades them in line with environmental standards and runs them for productive use. Today's decision also gives clarity to Italy that it can support the clean-up of the serious pollution problems at the Taranto site, as long as the money is subsequently recovered from the polluter."

The Ilva steel plant in Taranto is the EU's largest steel plant and, at full capacity, could produce as much as Bulgaria, Greece, Hungary, Croatia, Slovenia, Romania, and Luxembourg did together in 2015. The Commission has received numerous complaints from interested parties against alleged State measures aimed at keeping Ilva afloat artificially, potentially leading to a significant distortion of competition considering Ilva's large production capacity.

These measures together amount to c.a. €2 billion of possibly state supported financing. Theyinclude State guarantees on loans, a law exceptionally giving loans granted to Ilva an absolute payment priority in case of bankruptcy, including over debt to public entities, a law allowing Ilva access to funds seized during ongoing criminal proceedings against Ilva's shareholders and former management before those proceedings have established who owns these funds, and the settlement by payments to Ilva of a long standing dispute between State-owned Fintecna and Ilva.

The Commission is obliged to look into complaints of potential violations of EU state aid rules. It will now investigate further to examine whether its initial concerns are justified that these measures giveIlva an unfair advantage not available to its competitors, in breach of EU state aid rules.

Environmental and public health concerns in the area of Taranto

Ilva has failed to comply with environmental standards for many years, leading to serious environmental and public health problems in the Taranto area. Since 2013 the Commission has been pursuing infringement proceedings against Italy for failure to ensure that Ilva complies with EU legislation on environmental standards for industrial emissions. Following national criminal proceedings, Ilva's top management was indicted for the alleged environmental disaster and stepped aside from running the company. Since June 2013, Ilva has been under the extraordinary administration of Government-appointed commissioners, with a view to continuing industrial activity while modernising the plant to comply with environmental standards.

While today's decision clearly states the Commission's current concerns as regards the use of public money to modernise production at Ilva's Taranto plant, it does not prevent Italy from supporting measures urgently needed to clean up and containexisting pollution at Ilva's site and the surrounding areas and to improve public health in the Taranto area. Once national judicial authorities identify a responsible polluter, the Italian authorities should ask the polluter identified to reimburse, with interest, public money spent on cleaning up and containing existing pollution in line with the "polluter pays" principle. This inquiry will not interfere with the ongoing infringement proceedings against Italy concerning EU environmental legislation. Italy's actions to ensure that Ilva complies with EU environmental standards for industrial emissions have to be consistent with EU State aid rules.

Background on the European steel sector and applicable EU state aid rules

The European steel industry has a turnover of around €180 billion, with direct employment of about 360 000 people, producing around 170 million tonnes of steel per year in more than 500 production sites in 23 Member States. Effective overcapacity in the EU in 2015 has been estimated at c.a. 10-15% of total European capacity. European steel producers face global challenges, among which stiff competition from low cost countries which also experience major overcapacity, the decrease in global demand for steel, increasing energy costs, and a heavy reliance on imported raw materials.

Against this background, EU State aid rules do not allow public support for the rescue and restructuring of companies in difficulty in the steel sector. The steel sector was excluded by agreement of EU Member States and the Commission in the mid-1990s (Commission Decision No 2496/96/ECSC). Since then, the EU followed a market-driven approach to achieve the capacity adjustments and restructuring necessary to ensure a viable and sustainable steel industry in Europe. The Commission has to continue to apply State aid rules consistently to ensure a level playing field for those steelmakers that have already been carrying out painful and costly restructuring plans funded through private resources. Furthermore, as past experience has shown, allowing rescue and restructuring aid would distort competition and risk leading to subsidy races between Member States.

At the same time, EU State aid rules do allow Member States to grant state aid to enhance the global competitiveness of European steelmakers, such as for research & development, training aid and support for energy-intensive users. In recent years, several Member States have adopted measures aiming to compensate energy-intensive users, including steelmakers, for their high energy costs. Whilst these measures affect competition in the steel sector, they promote important common interest objectives. Moreover, clear limitations are set on the level of state aid that can be granted.

The Commission's approach is reflected also in its decision today regarding Belgian support measures for steel company Duferco. Since the exclusion from rescue and restructuring aid for steelmakers in difficulty in the mid-1990 it has adopted numerous negative decisions (many with recovery orders) in many EU countries, including Belgium, Germany, Italy and Poland.

Background on other Commission activities regarding the steel sector

In addition to applying EU state aid rules consistently to ensure a level playing field within the European steel market, the Commission draws on a set of policy tools, including trade and single market, for an effective and concerted response to global overcapacity and competitive markets. It is also working with EU Member States and the steel industry to help minimise any job losses caused by the economic conditions in the market.

In the field of trade policy, fair competition globally is part of an open and forward looking trade agenda. Trade defence instruments, such as anti-dumping or anti-subsidy, are ways of protecting European Union against international trade distortions and unfair trade. In the EU, there are currently 34 definitive measures in place on imports of steel products. In addition, there are new anti-dumping/anti-subsidy investigations ongoing for 6 other steel products.

The Commission is strongly committed to improving the overall competitiveness of Europe's industrial base. The competitiveness of the European steel sector is one of the main pillars of the EU's industrial agenda, and the industrial competitiveness objective is being mainstreamed into other EU policies, including the 2015 Single Market Strategy. The Commission is also supporting the transition to clean and smart production technologies and has set up a High Level Group on Energy-Intensive Industries to advise the Commission on policy issues and function as a forum for discussion between stakeholders. A special High Level conference to map the current challenges and discuss policy actions will take place in Brussels on 15 February 2016. The Commission continuously follows up the implementation of the Action Plan for a competitive and sustainable steel industry in Europe, adopted in 2013.

The EU’s European Globalisation Adjustment Fund (EGF) has been set up to help those adjusting to the consequences of globalisation. Since starting operations in 2007, the EGF has paid out some €550 million to help more than 128,000 workers. The EGF provides funding to help dismissed workers improve their employability and find new job opportunities (vocational training, up-skilling, temporary incentives and allowances etc.). For instance, as from 2014, the EGF has been supporting actions regarding employability of steel workers after closure of production sites in Belgium.

The non-confidential version of the decisions will be made available under the case number SA.38613 in the State aid register on the competition website once any confidentiality issues have been resolved. The State Aid Weekly e-News lists new publications of State aid decisions on the internet and in the EU Official Journal.